1. Technical Field
The present application relates generally to computerized accounting systems and methods, and amongst other things to account reconciliation systems and methods in computerized accounting systems.
2. Background
One of the more important tasks in the modem accounting process is the preparation of periodic financial statements. These financial statements are subject to audits and review by management, which both require an explanation of any out of balance conditions for any accounts and the specific entries that caused the out of balance conditions. In order to reconcile or explain the reasons for the account being out of balance the specific entries that were not balanced have to be identified. The determination of the specific entries that are out of balance requires manual intervention. Specifically, the users of the accounting system have to manually go through each entry and determine whether it is balanced. This laborious and time-consuming process does not provide any further information as to the reasons why the entry is not balanced, but only identifies the entries that are not balanced.
Purchasing accounts, such as those related to inventory accounts, are often out of balance in a given accounting period and therefore require reconciliation or an explanation as to why they are out of balance. Generally, the purchasing process begins with the creation of a purchase order that is sent to a vendor. The vendor then ships some or all of the goods ordered with a shipping manifest. The goods are received and the individual lines of the shipping manifest are entered into the computerized accounting system, where they are stored as different entries of a receipt. The entries of the receipt include, but are not limited to, goods related information such as the items shipped, cost, and quantity, as well as other non-goods related cost charges such as taxes, freight, duty, and overhead. The receipt entries generally are credited to clearing account and debited to an inventory account.
Some time after receipt of the goods, although sometimes along with their shipment, one or more invoices are received from one or more vendors. An invoice is a bill for goods related costs and non-goods related costs. The invoice is vouchered and input into the computerized accounting system. The voucher, which is the input invoice, also consists of multiple line-level entries each related to the goods and non-good related costs. The voucher entries are generally debited to the clearing account and credited to an accounts payable account.
For entries related to both receipts and vouchers the information includes a number of identifiers including, for example, the business unit making the purchase, the vendor, item information and identification, accounting code, quantity, description and the cost.
At the end of a time period, for example a month or quarter, a financial statement is prepared. In these financial statements, the clearing account should have a zero balance, i.e. debits equal credits. Often the clearing account does not balance and the accounting personnel are left with the task of reconciling the account and, if need be, determining the reason for the out of balance condition after attempts at reconciliation. The problem becomes more difficult to manage as the size of an organization increases, since the number of entries in the clearing account can easily number in the many thousands. The need to determine the reason for the out of balance conditions can require a great deal of time, if done manually, by the accounting personnel if using tick and tie approach. Moreover, the manual approach is prone to error and unexplained differences that often result in substantial write-offs and other adjustments to the organizations financial statement.
In some cases, the out of balance condition can result from the issuance of an invoice in a different accounting period than the receipt of the goods purchased. However, without knowing this information in advance, there still exists the need to find those receipt entries that do not balance and either reconcile them or be able to know that the related invoice has yet to be received. Other reasons that accounts could be out of balance include that either receipt or voucher was incorrectly entered, receipts were not entered, the receipt or voucher was entered in an incorrect account, the accounting system failed to enter the receipt into the general ledger account, and certain non-goods costs such as duties or freight are invoiced separately from the goods.
A further problem is that individual receipts may not, on a line-by-line basis, match individual vouchers. This often happens if more than one invoice is used by a vendor for single purchase order. This problem is common where orders of goods are shipped at different times. The reverse situation, multiple receipts for a single voucher, happens when a vendor bills at regular intervals, regardless of the number of purchase orders issued during the interval.
Therefore, there exists a need for efficient automation of the account reconciliation process, the determination as to which entries are not balanced, and for facilitating the explanation of the entries that are not balanced.